Internet filesharing – a European perspective on Grokster

The use of peer-to-peer software to enable sharing of music and movie files has been of great concern to the entertainment industry. The first target of their wrath was Napster, which was held liable in the US for its users' copyright infringement because its system used a central server, so Napster had at least some possible control over what its users were sharing. The next generation of peer-to-peer software companies therefore developed software which did not require a central server, or indeed any involvement of those companies beyond distribution of the software. Two of these companies, Grokster and Streamcast, were sued in US Federal court by MGM and other copyright owners. The appeals court held that they were not liable for the infringements committed by the users of their software because there was evidence that this software had substantial non-infringing uses. This decision was based on the Supreme Court's 1984 decision in Sony v Betamax, a case involving a previous technological challenge to the movie industry, the video recorder.

The Grokster case

In MGM vGrokster the US Supreme Court held that the two defendants, Grokster and Streamcast, who were both suppliers of free peer-to-peer filesharing software, could be held liable for copyright infringements perpetrated by the users of the software in sharing proprietary music and movie files.

The case was billed in advance as an opportunity to revisit the Sony/Betamax decision, in which the Supreme Court had previously held that distribution of a product capable of substantial non-infringing uses did not give rise to liability for infringement by purchasers of the product, at least absent knowledge of specific instances of infringement on which the distributor failed to act.

However in Grokster the Supreme Court effectively sidestepped Sony/Betamax. It held that on the specific evidence in this case Grokster and Streamcast were both capable of being held liable on a different basis, namely that they had induced the infringements perpetrated by the users. The court below had been wrong to find that the Sony/Betamax decision precluded a finding of inducement. The Sony/Betamax decision precluded the presumption or imputation of fault from mere distribution of the product where the product was capable of substantial non-infringing uses, but did not bar the introduction of evidence of statements and actions from which a patently illegal objective could be inferred. In the Sony/Betamax case there had been no evidence of stated or indicated intent to promote infringing uses.

The Supreme Court remitted the Grokster and Streamcast cases back to the District Court to proceed with determinations on the merits. The court pronounced that “one who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of infringement by third parties”.

The application of this inducement theory to copyright appears to be a new step in the USA, the Supreme Court having borrowed the concept from patent law.

The evidence on which the court relied included advertising or promotional materials produced and published by both companies, evidence that in response to specific user requests for help in locating and playing copyrighted materials both had responded affirmatively, and internal documents demonstrating that they had specifically aimed to pick up users of the Napster filesharing service. The court pointed to other internal documents indicating an unlawful purpose. The court also referred to evidence of the companies’ business models, whereby the suppliers’ advertising revenue was dependent on volume of usage of the software. It also relied, as reinforcing evidence, on the fact that neither company attempted to develop filtering tools. The court stressed however that such failure would not, in the absence of other evidence of intent, be sufficient to find liability if the device was capable of substantial non-infringing uses.

The Supreme Court took a broad view of inducement, holding that although evidence of advertising was the classic way of showing unlawful purpose, there could be inducement without any communication to the end user. Justice Souter, giving the judgment of the Court, said: “Whether the messages were communicated is not to the point … . The function of the message in the theory of inducement is to prove by a defendant’s own statements that his unlawful purpose disqualifies him from claiming protection … Proving that a message was sent out, then, is the pre-eminent but not the exclusive way of showing that active steps were taken with the purpose of bringing about infringing acts, and of showing that infringing acts too place by using the device distributed.”

The Court also rejected any requirement to show a causal link between the encouragement of the consumer and a resulting specific act of infringement. “… the distribution of a product can itself give rise to liability where evidence shows that the distributor intended and encouraged the product to be used to infringe. In such a case the culpable act is not merely the encouragement of infringement but also the distribution of the tool intended for infringing use.”

Below we round up comments from some of our European offices, focusing on whether a copyright owner could successfully argue for similar route to liability in their country.

In a very recent judgment of 27 May 2005, the Belgian Supreme Court answered the question whether the act of merely placing a CD-writer at the disposal of the public in a copy-centre was an act of infringement under the Belgian Copyright Act. The action was brought by two major collecting societies representing authors and publishers (SABAM and IFPI), against a small company that ran a copy-centre in which customers could buy re-writable CDs, use them in a CD-writer, and also copy the label of the copied CD. A manual informed the customer that the owner of a copyright protected CD was entitled to make one copy for personal use, and the customer himself, not the employees of the copy-centre, copied the CDs.

Although the Court of First Instance had initially granted the claims of the collecting societies, enjoining the copy-centre from further placing a CD-writer at the disposal of the public without the consent of the collecting societies for the reproduction of works that they managed, the Ghent Court of Appeal rejected the claim for an injunction, considering that making a copy, or requesting someone to do so, could constitute acts of infringement, but not the mere placing of a reproduction apparatus at the disposal of a customer. Where the collecting societies argued that the copy-centre had taken no initiative to prevent copyright infringement, the Court answered that the copy-centre could not be required to monitor the activities of its customers, for practical, economic, and legal reasons. According to the Ghent Court of Appeal, the case had to be clearly distinguished from other case law relied upon by the collecting societies, in that in the present case, the copy-centre staff did not make any copy themselves. Interestingly, the Court stated it was not proven that the owner of the copy-centre was aware of the alleged infringement by its customers, and that the Belgian Copyright Act did notevensanction the act of willingly delivering means for committing copyright infringement. It needs to be noted that in the CD-writer case, it was not even established that any ‘direct’ infringement was committed at all: for this reason, the collecting societies were forced to rely on the acts committed by the owner of the copy-centre.

The collecting societies filed an appeal with the Belgian Supreme Court, which was entirely rejected. The Supreme Court ruled that, also when the reproduction is made using an apparatus placed at the disposal of the customer in a copy-centre, the infringer is the person who materially makes the actual copy. Following this case law, it is unlikely that the person who (merely) distributespeer-to-peer software would be held liable for copyright infringement, so long as he does not materially make the actual copy.

However, once infringement by the use of illegal peer-to-peer exchanges has been established, it still needs to be examined whether an injunction can be granted against the access-provider. In this respect, it is interesting to note that in the past, lower court case law (President of the Brussels Court of First Instance, 24 June 2004) has relied on article 8.3 of EU Directive 2001/29 on the harmonisation of certain aspects of copyrights and relating rights in the information society, to rule that an injunction against the access provider in order to prevent further illegal peer-to-peer file exchanges by third parties, is not to be excluded, even if the access provider did not commit an act of infringement, provided that such a remedy is technically feasible.

The US Supreme Court's decision in the Grokster case puts the focus on determining whether the defendant companies intentionally encouraged infringement by inducement.

The charge of copyright infringement by inducement is not defined as such in the French Intellectual Property Code (the “CPI”). Article L.335-3 of the CPI states that any “reproduction, performance or dissemination of a work of the mind, by any means whatsoever, in violation of the author’s rights as defined and regulated by law shall also constitute an infringement”. Infringement by inducement is also not dealt with in more general civil or penal provisions. Further, such ground of infringement has not previously been dealt with by the courts, so no decision already rendered by the French courts could be considered as equivalent to Grokster case.

The concept which could help a French judge faced with a similar case to render a decision would probably be the ground of “complicity”, already used by French jurisdictions in case of copyright infringement. Article 121-7 of the French criminal code states, as a principle, that “accomplice to a felony or a misdemeanour is the person who knowingly, by aiding and abetting, facilitates its preparation or commission. Any person who, by means of a gift, promise, threat, order, or an abuse of authority or powers, provokes the commission of an offence or gives instructions to commit it, is also an accomplice”. An accomplice, who has provided means to commit the infringement, must have been aware of their infringing use (decrypting software, engraver of CDs…).

Evidence of knowledge by the defendant of fraudulent use of the means is essential, as the Paris Court of Appeal stated in a decision rendered on 13 October 1998 (Ministère Public v. Boccara & Lericque - confirmed by a decision of the French Supreme Court called “Cour de Cassation”, in 9 November 1999), about resale of copiers of video games. The company Nintendo brought action against two individuals, whose situations were different:

The first defendant was a professional salesman of video games, who legally bought and sold the equipment at issue. The Court decided that he was not an accomplice of infringement, even though copies, beyond their function of saving pending games, allowed unlimited copying of software. In fact, he could not know the effective use which would have been made of copiers by buyers. Thus, he was in the same situation as video recorder or blank video cassette sellers.

The second defendant was a student who resold the same copiers within a piracy network. The Court considered that he was an accomplice of infringement; "since he was perfectly aware that copiers would be used for other purposes than saving games and by selling them in large quantities, he allowed development of infringing acts".

Another decision rendered by the Paris Court of Appeal, dated 20 October 1988 (Artware and others v. Commande Electronique), may be of some interest, based on civil liability. A software dealer brought an action against a company which sold decrypting software which overcame the protection developed by the software dealer. Such acts have been adjudicated as “unfair competition acts by inducement to infringement of software.” In other words, inducement, in this case, was not sanctioned by copyright law but by unfair competition provisions, based on facts different from copyright infringement.

Despite the absence of any decision which could be considered as parallel to Grokster, many French protagonists have given their opinion following the Supreme Court’s decision. In particular, French Minister for Culture has ordered a legal study of the American decision, considering that it may improve the debate relating to the struggle against digital infringement and to development of securitised legal offers.

But various bodies involved in the debate over peer-to-peer software, such as some collecting societies, view the Grokster decision as a special case since it found the defendants liable on specific grounds, which could not be generalised (picking users of Napster and promoting the existence of protected works on their networks in order to increase their revenues). Consequently, in their opinion, it would not change anything with respect to the practice of file sharing in the world, including in France.

Even though the issue of inducement is not developed yet in France, the current situation of French case law may change in the next few months. We have been informed of the existence of an action before Paris First Instance Court, brought by two producers of the French blockbuster “Les Choristes” (“The Chorus”). Notably, the plaintiffs have attacked advertisers and internet access providers, alleging that they have financed, by their investments, alleged illicit downloading networks of movies. Such acts may be considered as complicit to infringement and to provoke infringement.

The German Federal Supreme Court has decided five cases which are to some extent similar to the US Sony/Betamax case: "Grundig Recorder" (1955), "Advertisement for Tape Recorders" (1960), "Advertisement for Audiotapes" (1963) and "Copy Shop" (1984).

In the first four cases, GEMA (a collecting society enforcing music-related copyrights on behalf of composers etc.) sued manufacturers of audio taping equipment for copyright infringement. GEMA argued that individuals using the audio taping equipment produced by the defendants infringe copyrights of GEMA's members and that the defendants support this infringement.

However – and this is an important difference from the US Sony/Betamax case – GEMA did not claim that defendants should stop producing audio taping equipment. GEMA merely claimed that defendants should clearly point out in every advertisement and on every sold item that the purchaser of the equipment has to respect the copyrights of GEMA's members and they need to get a licence from GEMA if they intend to use the equipment for copying protected works.

The Court held that according to section 97 of the German Copyright Act in connection with section 1004 of the German Civil Code, defendants can be held liable for infringement even if they do not intend to support infringement by third parties. There is a high likelihood that the audio taping equipment is used for illegal copying of protected works, notwithstanding the fact that the equipment might be also used for legal purposes. The Court therefore ordered that defendants have to post appropriate notes on their products and in their advertisements reminding the purchasers to respect the copyrights of GEMA's members. On the other hand, the holding of the Court seems to suggest that these sections would not provide a basis for a claim to prevent defendants from producing and selling such audio taping equipment (although the Court did not explicitly rule on this question).

Likewise, in the last of the five cases mentioned above, the Federal Supreme Court held that the owner of a copy shop has to post a sign on his premises that the "customers are responsible for respecting copyright protection".

These five cases could be taken as an indication how German Court would probably decide the Grokster case. However, it should be noted that under revised German Copyright Law copies made for private or scientific purposes are – to some extent – no longer regarded as copyright infringement (although this so-called "private copy privilege" is again under discussion and likely to be modified in the near future). Under this exception, the person downloading copyrighted music for his own use by using the Grokster software does not infringe the respective copyrights. On the other hand, the person posting copyrighted works on his personal computer for downloading by third parties is still liable for copyright infringement.

Therefore, the decisive question is whether Grokster. would have to stop distributing its software or whether they merely would have to post a clear notice, e.g. on the user interface of the software, that users are responsible for respecting copyright protection of the works which are made available for downloading. As mentioned before, case law seems to suggest that the claims of the copyright owners would be limited to the second alternative. However, as there has been no clear ruling on this question, it is completely unlikely that Courts would also grant a respective cease and desist order. Most scholars seem to favour such result so that Courts could be inclined to follow this prevailing opinion.

The Supreme Court dismissed Buma/ Stemra’s appeal on procedural grounds and this means that the Amsterdam Court of Appeal’s judgment, that KaZaA is not committing copyright infringement, still stands.

The Court of Appeal had concluded that KaZaA could not prevent the use of its software to copy files that are copyright protected. The Court also took into account that the only option KaZaA had to comply with the injunction imposed by the court below, was to completely shut down its website. The Court of Appeal ruled that KaZaA itself did not commit any copyright infringement. In as far as committing any acts, which were relevant under copyright law, this was done by KaZaA users and not by KaZaA itself. Providing the means to publish or multiply works that are copyright protected is not itself an act of publication or multiplication. It is not true either that the KaZaA software is exclusively used for illegally downloading copyright protected works. Therefore, supplying KaZaA software is not unlawful, according to the Court of Appeal.

The Court of Appeal clearly decided that KaZaA was not committing any copyright infringements and was not acting unlawfully in any other way. However, strictly speaking, there was no need for the Court of Appeal to decide this, since there was a different reason entirely why Buma/Stemra’s claim could not have been awarded. The Court of Appeal also rejected Buma/Stemra’s claim as it believed KaZaA could never fulfil the obligation as claimed by Buma/Stemra.

Buma/Stemra claimed that KaZaA should be ordered to take every precaution necessary to prevent copyright infringements by its users. Expert witness Professor Huizer advised that this was not technically feasible. Remarkably, Buma/Stemra had not amended its claim after the organisation received a copy of Professor Huizer’s report. At that stage, the collecting society could still have included a secondary claim, for instance for an injunction on future distribution of the software. Buma/Stemra however chose not to do so and so their claim was rejected.

Buma/Stemra argued in the Supreme Court that the Court of Appeal should have construed its claim in such a way that it would have included other, in Buma/Stemra’s view, less far reaching claims. More specifically, the claim should have been understood to include a claim for an injunction on future distribution of software that could be used to copyright protected works. The Supreme Court ruled that this would amount to a total injunction on distribution of the software, which could not be regarded as a less far reaching claim and therefore, could not have been regarded as included in the claim as filed.

Buma/Stemra also argued that its claim should have been construed to include a claim for an order to re-design the software in such a way that it could no longer be used to copyrights protected works. The Supreme Court ruled that the Court of Appeal’s assumption, that the re-design necessary to achieve this, was not possible.

Thus, the Court of Appeal had made no errors in its claim construction and had therefore correctly rejected the claim on the grounds that KaZaA could never fulfil such an obligation. Therefore, the Supreme Court made its decision without ever actually deciding any copyright issues itself. The Court of Appeal’s judgment is now standing case law.

The Dutch entertainment industry is now concentrating on the individual users of swap services who use software to upload copyright protected work without permission from the rights owners.

In conclusion it can be said that a claim based on procurement of copyright infringement has not been successful in The Netherlands so far. This could have been different if Buma/Stemra had brought a new action with better claims. However, Buma/Stemra chose not to do so and so their claim was rejected.

When it is - with respect to the present state of standardisation - still not possible to technically detect which files are copyrighted and which are not, KaZaA (or any other software) is still not capable of incorporating a blocking mechanism against the unlawful exchange of files. However, in the Grokster case the Court stated that the development of filtering tools will not be sufficient to find liability if the device was capable of substantial non-infringing uses. Therefore, with respect to this specific subject of the judgment the Dutch Court would probably stick to its position that KaZaA is not committing copyright infringement.

There are no specific provisions on contributory liability in the Swedish Copyright Act. In order to determine the liability of a person, which supplies software that can be used for illegal filesharing of copyright protected material, the general provision on contributory liability in the Swedish Penal Code is applicable. The provision on contributory liability is applicable to anyone who furthers another, by advice or deed, in committing an infringing act.

As of today there is no Swedish case law that could give guidance on the issue. Therefore, any prediction has to be very general and vague, since the outcome of a case would depend on the facts and evidence presented in the particular case. However, it would probably be safe to submit that when it is shown that the software also has legitimate areas of use besides illegal filesharing, a court may be reluctant to find contributory liability, more so the wider the legitimate use. On the other hand, if it is shown that the promotion of the software is clearly linked to illegal filesharing and it is also established that the great majority of the filesharing involves acts of copyright infringement, it is not unthinkable that a court might find the person liable for contributory infringement.

The UK equivalent of the US Sony/Betamax case was CBS v Amstrad, decided in 1988, in which the music industry sued Amstrad over the sale of twin-head double speed cassette tape recorders. The action went to the House of Lords (the UK’s highest court) and failed.

The music industry plaintiffs brought the action on several bases, including authorising infringement (a statutory concept specific to copyright), joint infringement and procuring infringement. Lord Templeman, with whom all their Lordships agreed, accepted that someone who procures a breach of copyright is liable jointly and severally with the infringer. A defendant might procure an infringement by inducement, incitement or persuasion.

However Amstrad did not procure infringement by “advertising the attractions of its machine to any purchaser who may decide to copy unlawfully. Amstrad is not concerned to procure and cannot procure unlawful copying. The purchase will not make unlawful copies because he has been induced or incited or persuaded to do so by Amstrad. The purchaser will make unlawful copies for his own use because he chooses to do so. Amstrad’s advertisements may persuade the purchaser to buy an Amstrad machine but will not influence the purchaser’s later decision to infringe copyright.”

It is noteworthy that Amstrad’s advertisements included a footnote disclaimer warning the purchaser that some copying required permission and that Amstrad had no authority to grant that permission.

Lord Templeman went on to say, “Sales and advertisements to the public generally of a machine which may be used for lawful or unlawful purposes, including infringement of copyright, cannot be said to ‘procure’ all breaches of copyright thereafter by members of public who use the machine. Generally speaking, inducement, incitement or persuasion to infringe must be by a defendant to an individual infringer and must identifiably procure a particular infringement in order to make the defendant liable as a joint infringer.”

Procurement of copyright infringement therefore already exists in the UK as a basis of claim, but ostensibly has a narrower compass than the inducement theory promulgated by the Supreme Court in Grokster. Firstly, the UK version appears to require communication between the distributor and the end user, such as by advertising. That is different from the Grokster formulation of unlawful purpose plus distribution plus end-user infringement. Secondly there is a suggestion that general inducement by advertising will not suffice, without proof of a specific infringement as a result of the communication to an individual infringer. Whether a House of Lords faced with the Grokster situation would stick to that position, or move in the direction of more general inducement, is an open question.

Another basis that might be considered is secondary infringement under S24 of the 1988 Copyright Designs and Patents Act. This provides that copyright in a work is infringed by a person who makes, imports, possesses in the course of a business or sells, lets for hire or exposes for sale or hire an article specifically designed or adapted for making copies of that work, knowing or having reason to believe that it is to be used to make infringing copies. The prevailing view of commentators is that this section does not apply to general purpose copying devices, but only to moulds, plates and so on designed to produce copies of a specific work. However the section has not yet been judicially considered.

This report was also published in the August issue of World Internet Law Report.